Modi gets AAA rating from Indian businesses

14 Jul 2014

Modi gets AAA rating from Indian businesses

Businesses confident after first days of new Indian Prime Minister

Fifty days on from Narendra Modi taking office as Indian Prime Minister, new figures from Grant Thornton’s International Business Report (IBR) reveal that business leaders in the world’s second largest economy are full of optimism about the future – but are also calling for change. India’s business community is the most optimistic in the world, yet they also express the biggest concerns about infrastructure, red tape and a lack of skilled workers, highlighting that the economy's enormous potential is being held back by familiar constraints.

The IBR results show business optimism in India at net 86% in Q2 - the highest in the world. At the same time, Indian business leaders’ expectations that revenue (93%), selling prices (81%), employment (76%) and profitability (90%) will increase over the next 12 months are also the highest of any country in the world.

However, beneath this enthusiasm the IBR reveals that business leaders in India are desperate for change. The proportion of business leaders who say their ability to grow is being hampered by problems with regulation and red tape (71%), a lack of skilled workers (59%), transport infrastructure (52%) and ICT infrastructure (51%) are also the highest of any economy in the world.

Pallavi Bakhru, Partner at Grant Thornton India, commented:

“Narendra Modi was elected on a pledge to get the economy moving again, as he did successfully in his time as chief minister of Gujarat, and while the business community has welcomed his arrival, there is undeniably strong undercurrent of discontent which cannot be ignored. Their demands are clear: less onerous regulation, better infrastructure and more skilled employees. Without reforms, India's enormous economic potential could be squandered.”

India is expected to become the most populous country in the world by 2030 and needs to add an estimated 100m jobs to satisfy these additional workers. According to the Royal Institution of Chartered Surveyors, in 2010 India had 500,000 civil engineers but needed closer to 4million, and has 45,000 architects despite needing over 350,000. Figures from the Organisation of Economic Development (OECD) show that India spending on education at around half the average. The OECD also estimates that volume on the national highways network is more than 39,000 passenger car units of motorised and non-motorised traffic - far exceeding the capacity of 15,000 passenger car units of two lane highways.

Pallavi Bakhru added:

“The danger if these people are not properly educated and these jobs are not created or remain vacant is not only the potential for social unrest, but also that India will lose the benefits of its demographic transition, where the young cohort of workers provides a one-off boost to growth potential.

"Skills shortages and weak transport infrastructure are perennial problems in India. The economic boom witnessed in recent years may have allowed previous administrations to deprioritise measures to improve these situations, but with growth well below its double-digit peak, Modi knows these are now well-entrenched brakes on the economy. The message from Indian business is loud and clear – he has their support for now, but he needs to deliver the improvements they crave.”